HUD (U.S. Department of Housing and Urban Development) plays a stellar role in making loans available for low and moderate-income families through various programs. FHA (Federal Housing Administration) is an agency within the HUD that was established in 1934 to allow Americans the opportunity to buy their dream home.
FHA provides mortgage insurance to private mortgage lenders, thereby giving the much-needed security in instances where first-time buyers do not qualify for conventional housing loans. FHA has helped many Americans with not-so-perfect credit to qualify for home loans. Let us examine the guidelines for FHA loans and how they can be obtained. We take a look at various aspects of FHA mortgage loans, the FHA loan limits and the procedure involved.
FHA home loan
Most conventional housing loans require the borrower to put down a sizeable percentage. The FHA home loan scheme allows Americans to avail of home loans by putting down as little as 3% of the amount. The FHA as an agency does not disburse home loans but insures them. This means that in case you default on your loan, the loan lender is reimbursed from the FHA insurance fund. The premiums paid by the FHA loan borrowers constitute the Mutual Mortgage Insurance Fund. In cases of default, the lenders claims are paid by the FHA mortgage insurance program.
FHA loan limit is determined by your gross monthly income. The monthly housing costs - PITI (mortgage principal and interest as well as property insurance and taxes) must not exceed 29% of the gross monthly income. Also taken into consideration are your other monthly costs such as long-term debt.
FHA loan process
You can apply for an FHA loan online. You will need to provide all the details and information that is vital for the process. These include:
The FHA interview is part of the FHA loan process. The loan officer plays a crucial role in seeing your application through all the stages of processing. You can apply for FHA loan with a pre-qualification. The final stage in the FHA loan process is the signing of all mortgage documents and taking possession of your new home.
FHA loans allow you to purchase manufactured homes, multi-family units or single-family residences. The FHA requirements and FHA loan limits vary from county to county. Most FHA loans are assumable. If you are selling your home, the buyer can assume your FHA home loan. In a situation where you are purchasing a home, you can assume a loan too.
The benefits are easier streamlining of the FHA home loan process and reduced costs. It may also result in lower interest rates for the FHA loan. Prepayment of FHA home loans does not attract penalty. The FHA also looks into your credit history during the loan application process. But there is more flexibility when compared to conventional lenders.
FHA loan requirement
FHA mortgage loans are given to those who meet the FHA loan requirements and who ca afford the monthly payments and the cash investment. This is primarily for those who are intend to use the property as the primary residence. The FHA loan limits vary throughout the country. The FHA loan limit can range from $115,200 to even $208,800. The average prices for homes in the area and the conforming loan limits play a role in the FHA loan limits.
The FHA 203(b) loan is the most commonly -availed FHA loan program. This allows low down payment and flexible qualifying guidelines. The 203(k) loan of the FHA program allows a borrower to finance the purchase and rehabilitation of a home through the same mortgage. A portion of the FHA home loan is used to pay off the existing mortgage whereas the remainder is placed in escrow account until the rehabilitation is completed.
Other than the obvious advantage of a lower down payment for an FHA mortgage loan, there are other benefits that can accrue from availing an FHA home loan. There is more flexibility in the underwriting standards for FHA loans. Gift funds can be used for down payment and closing costs. FHA's refinance schemes allow you to lower your payments without incurring additional costs. The FHA ARM offers advantageous features. FHA loan rates are similar to the interest rates on conventional loans for the same term. The mortgage insurance premiums may vary.
The ARM (Adjustable Rate Mortgage) of the FHA allows interest rate protection with annual and lifetime interest rate caps. The ARM allows people to purchase or refinance a residence at a lower initial interest rate. It is a program that is useful if you have debt to income problems.